Brazilian economy on the rebound from currency crisis

April 19, 2000
Web posted at: 7:35 p.m. EDT (2335 GMT)

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RIO DE JANEIRO, Brazil (CNN) -- A little more than a year ago the Brazilian economy seemed on the verge of collapse. Now it is on the rebound, a recovery fueled in part by increasing investment from abroad.

Brazil started removing trade barriers almost a decade ago, a trend that has gathered pace under President Fernando Henrique Cardoso, who has been in power since October 1994.

"Last year we received about $27 billion in foreign investment; this is good," Cardoso said. "We need more technology, but the rest depends on ourselves."

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CNN's Debra Daugherty examines how international investment is helping the once troubled Brazilian economy rebound. Real 28K 80K Windows Media 28K 80K

During last year's currency crisis in Brazil, investors sent billions of dollars out of the country.

Brazil's economy became swept up in the worldwide economic crisis that was sparked by the collapse of Asian markets in 1997. By the summer of 1998, international investors began to fear that the government would not be able to cover a $65 billion budget deficit and might default on its loans.

In response, the government let Brazil's currency, the real, float freely against the dollar in January, only to see the currency plunge to half its previous value.

But a combination of events -- the re-election of President Cardoso in October 1998, moves to rein in speculators, a cut in interest rates and the government's ability to keep inflation within the range promised under a $41 billion International Monetary Fund bailout -- have stabilized the economy and encouraged overseas investment.

In a recent example of renewed international investment, American company Bestfoods paid $490 million for Brazilian food manufacturer Arisco.

Brazil has also attracted business from other South American countries.

Tire-maker Fate closed its doors in Argentina and moved some of its factories to Brazil to take advantage of favorable tax breaks and the devaluation of the real.

"We've chosen to move some of our factories north of the border, and continue to produce in Brazil, to take advantage," said Roberto Cuyungian of Fate.

Increased competition from abroad has forced Brazilian businesses to become more efficient.

Brazil's largest beer producer, Brahma, recently merged its work force with rival Antarctica, giving the companies 70 percent of the domestic market.

Many Brazilians remain wary of international investment. But economic analyst Carlos Ivan Simonsen Leal takes a different view.

"We have to stop criticizing foreign investment ... and make sure that Brazilians can invest in Brazil's future and become partners," he said.

Correspondent Debra Daugherty contributed to this report.

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